Questor share tip: Hold Pennon as it reaches milestone
The utility group shares are worth watching as it has an interesting 6 months ahead in its vitality from waste development programme,says Questor. 
Photo: GEOFF PUGH FOR THE TELEGRAPH
Pennon
786p-3p
Questor says HOLD
PENNON [LON:PNN] shares are well well worth watching in the course of the subsequent six months as the business completes a development project that need to deliver rapid earnings growth.
The organization, which also combines a steady water utility and provides wholesome dividend income, is starting to look exciting for traders.
The FTSE 250-listed company is not your common utility business. It combines South West Water, a lucrative and stable water utility, and Viridor, a reduction-generating and hugely capital-intensive landfill and recycling group.
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Nonetheless, this 12 months could see Viridor flip things all around. The business is nearing completion of 5 new waste incinerators that will far more than double funds revenue inside of the up coming 3 years, to far more than £100m.
The business stated that a new plant at Ardley is now burning waste and has been plugged into the grid. Viridor was handed the keys to a new plant in Exeter at the finish of July that is presently in testing phase. The largest site, at Runcorn, near Manchester, is already burning waste and underneath testing. Yet another website in Runcorn and 1 in Cardiff are anticipated to be completed later this year.
Viridor is reduction-making due to the fact the landfill business has been hit by larger green taxes and reduced cash flow as competitors battle for company. The recycling business is also suffering from a downturn, as 1 of the world’s biggest customers of recycled materials, China, sees its economic growth slow.
Pennon explained that Viridor’s first half adjusted earnings would be “materially lower” than the exact same stage final yr.
South West Water, by comparison, is doing effectively. It will be impacted by the value freeze but it now has regulatory certainty for the 5-12 months period from 2015.
The shares are still looking a bit pricey, trading on 21 times forecast earnings, and Questor would wait until the waste incinerators are entirely up and operating. Hold.
QUESTOR raises yesterday’s recommendation on pallet organization RM2 International to a hold due to an error as, following a effective listing on the Aim industry, the firm is now debt cost-free and using funds for expansion.